Tax Type
BPOL Tax
Local Taxes
Description
Employee vs. independent contractor
Topic
Local Power to Tax
Date Issued
12-09-1999
December 9, 1999
Re: Taxpayer: Locality Assessing Tax: Appeal of Business, Professional and Occupational License (BPOL) Tax Final State Determination
Dear***:
This final state determination is issued upon the application for correction filed by you with the Department of Taxation. You appeal a final local determination upholding an audit assessment of BPOL taxes to you by the Commissioner of the Revenue of the (the City).
The local license tax and fee are imposed and administered by local officials. Code of Virginia Sec. 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. The following determination is based on the facts presented to the department as summarized below. On appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
This determination addresses the question of whether or not you are subject to license taxation by the City. Copies of cited sources are enclosed.
FACTS
You state that you represent a pharmaceutical corporation. You call on health care providers to inform them of the corporation's products. You are paid a fixed amount per visit. You do not sell products or take orders. Although you conduct some business activity from your home, such as phone calls and correspondence, you state that you do not maintain a home office or other definite place of business. You state that you have little decision-making authority. The corporation dictates which health care providers you can visit, how often you can see them and the information you provide to them.
The corporation treats you as an independent contractor, not as an employee, for federal payroll tax purposes. You do not receive a W-2 from the corporation. The corporation does not withhold income or employment taxes from your earnings. On your federal income tax return, you report your earnings on a Schedule C (Profit or Loss from Business).
After a review of your federal tax return, the City determined that you are engaged in business and assessed license taxes. You sought correction of this assessment, asserting that (1) you are not engaging in business, and (2) you do not have a definite place of business in the City. You filed this application for correction after the City rejected your arguments.
OPINION
In general, localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia Secs.58.1-3700 and 58.1-3703(A). Business means ``a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit.' Code of Virginia Sec. 58.1-3700.1.
Employee vs. Independent Contractor
In order to be subject to local license taxation, one must be ``engaging in a business.' An independent contractor is engaging in a business but an employee generally is not. Employees performing duties within the scope of employment are performing their employer's business. The BPOL statute imposes a license requirement on the business itself, not the employees of the business. 1997 Guidelines Sec.3.7.1. For purposes of assessing local license taxes:
This case presents facts supporting your assertion that you are an employee and facts supporting a determination that you are an independent contractor. It is my determination that the facts you present in support of your assertion that you are an employee are not sufficient to overcome the presumption of correctness accorded to the City's determination that you are an independent contractor. I would note that the corporation treats you as an independent contractor for federal income tax purposes. Accordingly, the City's determination that you are an independent contractor, and thus engaging in business, stands as is.
Jurisdiction to Impose Tax
In order to be subject to local license taxation in a Virginia locality, one must generally maintain a definite place of business in the locality.
Code of Virginia Sec. 58.1-3700.1 provides that ``(a) person's residence shall be deemed a definite place of business if there is no definite place of business maintained elsewhere...' As you maintain a residence in the City and maintain no definite place of business elsewhere, your residence is deemed to be a definite place of business. Accordingly, the City's determination that you maintain a definite place of business in the City, and thus are subject to license taxation in the City, stands as is.
CONCLUSION
As you have not shown sufficient proof that the assessment made by the locality is incorrect, the assessment stands as is. If you have other questions, please do not hesitate to contact ***** Tax Policy Analyst, in my Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/24650D
Re: Taxpayer: Locality Assessing Tax: Appeal of Business, Professional and Occupational License (BPOL) Tax Final State Determination
Dear***:
This final state determination is issued upon the application for correction filed by you with the Department of Taxation. You appeal a final local determination upholding an audit assessment of BPOL taxes to you by the Commissioner of the Revenue of the (the City).
The local license tax and fee are imposed and administered by local officials. Code of Virginia Sec. 58.1-3703.1(A)(5) authorizes the department to receive taxpayer appeals of certain local license tax assessments and to issue determinations on such appeals. The following determination is based on the facts presented to the department as summarized below. On appeal, a BPOL tax assessment is deemed prima facie correct. In other words, the local assessment will stand unless the taxpayer proves that it is incorrect.
This determination addresses the question of whether or not you are subject to license taxation by the City. Copies of cited sources are enclosed.
FACTS
You state that you represent a pharmaceutical corporation. You call on health care providers to inform them of the corporation's products. You are paid a fixed amount per visit. You do not sell products or take orders. Although you conduct some business activity from your home, such as phone calls and correspondence, you state that you do not maintain a home office or other definite place of business. You state that you have little decision-making authority. The corporation dictates which health care providers you can visit, how often you can see them and the information you provide to them.
The corporation treats you as an independent contractor, not as an employee, for federal payroll tax purposes. You do not receive a W-2 from the corporation. The corporation does not withhold income or employment taxes from your earnings. On your federal income tax return, you report your earnings on a Schedule C (Profit or Loss from Business).
After a review of your federal tax return, the City determined that you are engaged in business and assessed license taxes. You sought correction of this assessment, asserting that (1) you are not engaging in business, and (2) you do not have a definite place of business in the City. You filed this application for correction after the City rejected your arguments.
OPINION
In general, localities may charge a fee for issuing BPOL licenses or may levy a license tax on a business for the privilege of engaging in business at a definite place within the locality. Code of Virginia Secs.58.1-3700 and 58.1-3703(A). Business means ``a course of dealing which requires the time, attention and labor of the person so engaged for the purpose of earning a livelihood or profit.' Code of Virginia Sec. 58.1-3700.1.
Employee vs. Independent Contractor
In order to be subject to local license taxation, one must be ``engaging in a business.' An independent contractor is engaging in a business but an employee generally is not. Employees performing duties within the scope of employment are performing their employer's business. The BPOL statute imposes a license requirement on the business itself, not the employees of the business. 1997 Guidelines Sec.3.7.1. For purposes of assessing local license taxes:
-
- the determination as to whether a person is an employee or an independent contractor is based on common law principles and is affected by factors such as control, who furnishes materials, and other factors ... localities are entitled to rely upon the classification of a person as an employee or independent contractor for federal payroll tax purposes unless the taxpayer demonstrates that the classification for federal payroll tax purposes is erroneous or inapplicable.
- the determination as to whether a person is an employee or an independent contractor is based on common law principles and is affected by factors such as control, who furnishes materials, and other factors ... localities are entitled to rely upon the classification of a person as an employee or independent contractor for federal payroll tax purposes unless the taxpayer demonstrates that the classification for federal payroll tax purposes is erroneous or inapplicable.
This case presents facts supporting your assertion that you are an employee and facts supporting a determination that you are an independent contractor. It is my determination that the facts you present in support of your assertion that you are an employee are not sufficient to overcome the presumption of correctness accorded to the City's determination that you are an independent contractor. I would note that the corporation treats you as an independent contractor for federal income tax purposes. Accordingly, the City's determination that you are an independent contractor, and thus engaging in business, stands as is.
Jurisdiction to Impose Tax
In order to be subject to local license taxation in a Virginia locality, one must generally maintain a definite place of business in the locality.
Code of Virginia Sec. 58.1-3700.1 provides that ``(a) person's residence shall be deemed a definite place of business if there is no definite place of business maintained elsewhere...' As you maintain a residence in the City and maintain no definite place of business elsewhere, your residence is deemed to be a definite place of business. Accordingly, the City's determination that you maintain a definite place of business in the City, and thus are subject to license taxation in the City, stands as is.
CONCLUSION
As you have not shown sufficient proof that the assessment made by the locality is incorrect, the assessment stands as is. If you have other questions, please do not hesitate to contact ***** Tax Policy Analyst, in my Office of Tax Policy, at *****.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/24650D
Rulings of the Tax Commissioner